Do Medical Credit Cards Make Sense for Providers?
Some providers have helped enroll patients in such providers facing high deductibles but such practices can sour patients who are unaware of the fine print, say finance experts.
Feb. 14—Can so-called medical credit cards help hospitals address growing bad debt challenges?
Providers are likely to receive more overtures from financial services companies to get them to promote medical credit cards. Such instruments tout zero interest for a specific period of time but actually defer interest and hit consumers with high rates if they don’t pay off the debt within that period.
Primarily used by dentists, cosmetic surgeons, and veterinarians, the cards are looking for a broader range of providers, as well as larger organizations.
The biggest medical card company, CareCredit, has more than 210,000 participating providers and seeks to broaden the spectrum of healthcare specialists with which it works and grow through the enrollment of hospitals, said David Salzman, vice president of communication at Synchrony Financial, which is CareCredit’s parent company.
“With patient out-of-pocket healthcare costs increasing, hospital networks are exploring financing solutions to address the revenue impact associated with the collectability of patient obligations,” Salzman said in an interview. “And growth-oriented healthcare networks are discovering that financing solutions can be an important factor in patients’ decisions to go forward with planned procedures.”
One of the newest entrants, MedZero, was recently launched by Mobile Capital Group in Kansas City and lender Sortis Holdings to provide advances to employees, who use a cell phone application to get virtual credit cards—zero-interest loans repaid over 12 months through payroll deduction—that can be used to pay for medical expenses. Providers pay MedZero to join the network, which started in Kansas City and Seattle.
The limited-use cards came into a market that has seen more patients go into debt to cover healthcare expenses.
As medical expenses have increased, consumers—about 27 million—increasingly have put the expenses on their credit cards, according to NerdWallet. The average American pays $471 per year in interest from medical charges, or a total of about $12 billion.
The Kaiser Family Foundation found 37 percent of Americans have taken on additional credit card debt to pay for medical costs, and pegs medical debt as the nation’s top cause of personal bankruptcy filings.
Younger people might be more likely to have to turn to medical credit cards to pay for care. Sixty-two percent of young millennials and 44 percent of older millennials can’t cover emergency medical expenses, according to a GOBankingRates survey.
Approval rates are generally high and come quickly, with patients often approved on the spot in healthcare offices.
CareCredit’s standard APR is 26.99 percent. Its interest-free options for payoff includes six-, 12- 18- and 24-month periods. Other reduced rates range from 14.9 percent to 16.9 percent for longer periods on charges of at least $1,000.
The appeal for some providers—getting paid right away—is understandable, said Robert Tennant, director of health information technology policy at the Medical Group Management Association said.
“Except for the merchant credit card fees, it’s guaranteed payment; whereas if they were to offer essentially credit from the practice to the patient and put the patient on a monthly payment plan, that could take days in (accounts receivable). That’s all kinds of administrative burden for the practice with the threat that the payments would stop, and then you’ve for to go to collections, which is very expensive for a practice,” Tennant said in an interview.
High-deductible health plans (HDHPs) also have led to a rise in the cards, he said.
“I’m not surprised at all that companies like these have sprung up to fill what normally would be filled by the insurance companies,” Tennant said. “People are attracted to a low monthly rate on their insurance only to find out the deductible is a huge out-of-pocket expense, which makes these types of cards attractive to these folks.”
But HDHPs have created challenges for practices.
”It is a terrible situation for the practice to have to have these conversations with folks who legitimately thought they had health insurance, only to find out that their insurance won’t kick in until some dollar figure down the road,” Tennant said. “It’s not a good situation for anybody. And these companies have moved into this space and unfortunately fill the need in the industry.”
Plenty of healthcare industry observers have cautioned patients against using the cards.
Healthcare providers need to think beyond getting paid and consider potential patient hardships the cards could place on their patients, said Gina Calabrese, co-director of the Public Interest Center at St. John’s University School of Law.
“If you think a medical provider has other responsibilities—professional and ethical responsibilities—to a patient, then you would have some misgivings about these credit cards,” she said.
Her center has worked with clients who were prompted by healthcare professionals in the office to sign on for the financing without knowing they were credit cards limited to medical procedures and purchases that carried deferred interest.
CareCredit in 2013 was ordered by the Consumer Financial Protection Bureau to refund customers $34 million for deceptive enrollment practices. Many customers said they were unaware that accrued interest would kick in if the full balance was not paid at the end of a promotional period.
“The concern is the front desk people aren’t explaining the procedures,” Calabrese said. “You’re having a medical professional sell someone a credit card. Is that what doctors and dentists should be doing? Do they know enough? Patients have a certain expectation that their doctors will have their wellbeing in mind.”
Despite growth, the medical credit cards offer little advantage over traditional credit cards for providers, said Jay Anders, MD, chief medical officer of Medicomp Systems, a medical information technology company.
“It’s nothing more than another payment vehicle,” Anders said in an interview. “The cost of medical care is so great and the charges can be run up very high; you can run up a lot of debt very quickly. It’s another financing gimmick by someone who wants to charge interest from people unfortunate enough not to have health insurance or not to have enough for the co-payment and things like that.”
And barring the exemption of merchant fees, Anders sees no benefit to providers to promote use of the cards over traditional credit cards. And he doesn’t think they’ll be around for long.
“I certainly don’t see providers or hospitals getting on board with it,” Anders said.
Cheryl V. Jackson is a freelance writer. Follow Cheryl on Twitter: @cherylvjackson